Ugly Duckling Reports Financial Results for 2000
PHOENIX--Feb. 21, 2001--Fourth Quarter Highlights:
| -- | Total revenues from continuing operations increased 28% to $135.4 million from $105.4 million in the year-ago quarter |
| -- | E-Commerce generated $13.7 million in revenues and 1,553 cars sold during the fourth quarter of 2000 as compared to $12.0 million in revenues and 1,417 cars sold during the third quarter of 2000 |
| -- | On-balance sheet loan portfolio principal balance reached $514.9 million, representing a 44% increase over the year-ago quarter |
| -- | New loan originations reached $100.8 million, a 25% increase over the year-ago quarter |
| -- | Closed 18th Securitization with loan principal balances of approximately $145 million and Class A bonds issued of $102.6 million |
| -- | Entered into a $35 million Senior Secured Loan Facility with an investor group and a $7 million Subordinated Loan from the Company's Chairman, replacing the previous $38 million senior loan facility (announced January 11, 2001) |
| -- | Incurred $5.9 million after tax charge to earnings to increase Allowance for Credit Losses |
Financial Highlights
(In 000's, except for per share numbers)
----------------------------------------------------------------------
December 31,
---------------------------------------------
Three Months Ended Year Ended
---------------------- ---------------------
2000 1999 2000 1999
---------- -------- ---------- ----------
Total Revenues $ 135,368 $ 105,429 $ 604,856 $ 465,954
Operating income (loss) $ (1,991) $ 5,711 $ 24,731 $ 17,715
Earnings (loss) -
continuing operations $ (2,451) $ 2,619 $ 9,063 $ 8,687
Diluted earnings per
share - continuing
operations $ (0.20) $ 0.17 $ 0.67 $ 0.57
----------------------------------------------------------------------
Ugly Duckling Corporation , the largest used car sales company focused exclusively on the sub-prime market, today reported its fourth quarter and full year 2000 financial results.
Quarter over Quarter Results
For the three months ended December 31, 2000, the Company reported a loss from continuing operations of $2,451,000, or $(0.20) per diluted share, compared with earnings from continuing operations for the three months ended December 31, 1999 of $2,619,000, or $0.17 per diluted share. The loss in 2000 is attributable to an additional after tax charge to continuing operations of $5.9 million ($0.48 per diluted share) and relates to higher than expected loan losses, primarily on 1999 originations.
"While we were very disappointed with the need to take the charge, we were pleased with the operating results for the quarter," said Greg Sullivan, Chief Executive Officer and President of the Company. "Absent the additional charge, the quarter was a record fourth quarter for the Company. The Company has reached a size where it has achieved operating efficiencies and can operate quite profitably. We are committed to slowing our growth until we have improved our loan loss experience."
The Company sold 11,874 cars in the fourth quarter of 2000, an increase of 22% over the 9,731 cars sold in the year-ago quarter. The increased number of cars sold, together with growth in interest income, resulted in total revenues of $135,368,000 for the fourth quarter of 2000, an increase of over 28% from total revenues of $105,429,000 in the fourth quarter of 1999.
Interest income for the fourth quarter of 2000 increased sequentially to $32,881,000 from $31,436,000 in the third quarter of 2000, a gain of 5%, and from $22,670,000 in the same quarter of the previous year, an increase of over 45%. The increase in both periods is primarily attributable to the continued growth of the Company's on-balance sheet portfolio, resulting from Ugly Duckling's change to on-balance sheet financing for the Company's securitization transactions beginning in the latter part of 1998.
New loan originations for the fourth quarter of 2000 reached $100,822,000, representing a 25% increase from the $80,905,000 originated during the fourth quarter of 1999. The quarter over quarter increase is primarily the result of an increased number of Ugly Duckling dealerships along with an increase in E-Commerce originations. The Company's dealerships increased in number to 77 in the fourth quarter of 2000 from 72 in the year-ago fourth quarter.
Operating expenses for the fourth quarter of 2000 reached $33,782,000, or 25% of total revenues, compared with operating expenses of $26,892,000, or 26% of total revenues, for the same quarter of the prior year. The Company has managed to maintain stability in operating expenses as a percentage of total revenues, primarily due to the continued enhancements and efficiencies gained from the Company's computer system and despite incurring additional expenses related to transitioning collectors out to the dealership locations. As of December 31, 2000, there are on-site collectors in all 77 dealerships.
Loan Portfolio
The fourth quarter has typically been a challenging quarter for the Company in servicing its portfolio of sub-prime loans. While improvement was expected, charge offs as a percentage of the portfolio for the fourth quarter of 2000 remained relatively constant as compared to the year ago quarter. The 31+day delinquencies improved for the fourth quarter of 2000 decreasing to 7.8%, down from 9.0% at the end of the fourth quarter of 1999. Current accounts, those accounts not one day delinquent, have declined from 72.4% at the end of the third quarter of 2000 to 66.1% at the end of the fourth quarter of 2000, but improved over the 63.2% reported at the end of the fourth quarter of 1999. The Company's in store collectors service these accounts; the Company continues to be pleased with the performance of the in store collections model.
Based upon its continued review of the adequacy of the Allowance for Credit Losses, the Company has taken an additional charge, net of income tax effect, of approximately $5.9 million during the fourth quarter of 2000. The Company believes this charge will increase the Allowance balance as of December 31, 2000 to a level that it estimates to be adequate to cover net charge offs for the next 12 to 15 months, the Company's targeted coverage range for the Allowance. Although the Company increased the provision charged as a percentage of current originations from 27% to 29% beginning in the third quarter of 2000, losses relating primarily to 1999 originations continued to emerge at higher than expected levels therefore requiring an increase to the provision. With the charge, the effective provision for credit losses for 2000 as a percentage of originations was 30.0%, 3% higher than in 1999.
"We are disappointed that we needed to take a charge in the fourth quarter to get our Allowance for Loan Losses within the adequate range," continues Mr. Sullivan. "However, at this point originations in 2000 are outperforming those in '99 and we plan to build upon this improvement."
Continued Growth in 2000
For the year ended December 31, 2000, the Company reported earnings from continuing operations of $9,063,000, or $0.67 per diluted share, compared with earnings from continuing operations of $8,687,000, or $0.57 per diluted share, for the year ended December 31, 1999.
Used car sales totaled $483,282,000 in 2000, an increase of 24% over sales of $389,908,000 in 1999. The Company sold 56,870 cars in 2000, an increase of over 23% as compared to 46,120 cars sold in 1999. The increased number of cars sold, together with an increase in interest income, resulted in total revenues of $604,856,000 for the year, an increase of 30% from total revenues of $465,954,000 in 1999. New loan originations for 2000 reached $472,091,000, representing a 24% gain over the $382,335,000 originated in 1999.
Interest income for 2000 increased approximately 75% to $119,719,000 from $68,574,000 in 1999, resulting from the rapid growth of Ugly Duckling's on-balance sheet portfolio as noted previously. Operating expenses of $143,208,000 for 2000 and $111,650,000 for 1999 remained constant as a percentage of total revenues at 24%.
Uglyduckling.com Provides Continued Growth
Senior Secured Loan Facility and Subordinated Loan
During January 2001, the Company entered into a $35 million senior secured loan facility as a renewal for its $38 million senior loan facility originated in May 1999. The loan proceeds provide additional working capital and funds to pay down existing debt.
The Company also entered into a $7 million subordinated loan with an affiliate of the Company's chairman and largest shareholder, Mr. Ernest C. Garcia II. The loan was a condition for the new senior secured loan facility and the loan proceeds were placed in escrow as additional collateral for the $35 million senior secured loan. Among other conditions, this loan is subordinate to the new senior secured loan.
Warehouse Lender
As previously reported, the Company's primary warehouse lender under its existing $125 million facility informed the Company that as part of a global decision to exit the automobile finance market, it intends not to renew the existing warehouse line that terminates June 30, 2001. The Company believes that with its strong balance sheet, its five-year history of successful securitization transactions, continued profitability and its proven business model, the Company will be able to replace its warehouse facility. To that end, the Company has received non-binding proposals for alternative financing for both its warehouse and inventory lines of credit, and expects to enter into binding agreements related to both by quarter-end.
(Financial Tables Follow)
UGLY DUCKLING CORPORATION
Consolidated Operating Results
(In thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2000 1999 2000 1999
-------- -------- -------- --------
Cars Sold 11,874 9,731 56,870 46,120
========= ========= ========= =========
Total Revenues $ 135,368 $ 105,429 $ 604,856 $ 465,954
========= ========= ========= =========
Sales of Used Cars $ 102,333 $ 82,275 $ 483,282 $ 389,908
Less:
Cost of Used Cars Sold 56,129 45,642 268,248 219,037
Provision for Credit
Losses 39,094 21,842 141,971 102,955
--------- --------- --------- ---------
7,110 14,791 73,063 67,916
Other Income (Expense):
Interest Income 32,881 22,670 119,719 68,574
Portfolio Interest
Expense 8,354 5,342 26,698 14,597
----- ----- ------ ------
Net Interest Income 24,527 17,328 93,021 53,977
Servicing and Other
Income 154 484 1,855 7,472
--------- --------- --------- ---------
Total Other Income 24,681 17,812 94,876 61,449
Income before Operating
Expenses 31,791 32,603 167,939 129,365
Operating Expenses:
Selling and Marketing 6,008 5,173 28,756 23,132
General and
Administrative 25,433 19,807 105,387 81,570
Depreciation and
Amortization 2,341 1,912 9,065 6,948
--------- --------- --------- ---------
Operating Expenses 33,782 26,892 143,208 111,650
Operating Income
(Expense) (1,991) 5,711 24,731 17,715
Other Interest
Expense 2,226 1,292 9,463 3,028
--------- --------- --------- ---------
Earnings (Loss)
before Income
Taxes (4,217) 4,419 15,268 14,687
Income Tax Expense
(Benefit) (1,766) 1,800 6,205 6,000
--------- --------- --------- ---------
Earnings (Loss)
from Continuing
Operations: (2,451) 2,619 9,063 8,687
--------- --------- --------- ---------
Discontinued
Operations:
Net earnings from
Operations -- 248 -- 248
Net earnings on
Disposal of
Operations -- 325 -- 325
--------- --------- --------- ---------
Net Earnings (Loss) $ (2,451) $ 3,192 $ 9,063 $ 9,260
========= ========= ========= =========
Earnings (Loss) per
Common Share
Continuing
Operations:
Basic $ (0.20) $ 0.18 $ 0.67 $ 0.58
========= ========= ========= =========
Diluted $ (0.20) $ 0.17 $ 0.67 $ 0.57
========= ========= ========= =========
Net Earnings (Loss)
per Common Share:
Basic $ (0.20) $ 0.21 $ 0.67 $ 0.61
========= ========= ========= =========
Diluted $ (0.20) $ 0.21 $ 0.67 $ 0.60
========= ========= ========= =========
Shares Used in
Computation:
Basic Weighted Avg.
Shares Outstanding 12,364 14,889 13,481 15,093
========= ========= ========= =========
Diluted Weighted
Avg. Shares
Outstanding 12,364 15,167 13,627 15,329
========= ========= ========= =========
UGLY DUCKLING CORPORATION
Consolidated Operating Expenses and Related Information
(Dollars In thousands, except per car data)
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- ---------------------
2000 1999 2000 1999
---------- -------- ----------- --------
Segment Information:
--------------------
Retail Operations:
Selling and
Marketing $ 6,008 $ 5,173 28,756 23,132
General and
Administrative 13,020 11,083 56,373 44,770
Depreciation and
Amortization 1,272 1,015 4,677 3,588
-------- -------- -------- --------
Operating Expenses -
Retail 20,300 17,271 89,806 71,490
-------- -------- -------- --------
Portfolio Expense:
General and
Administrative 8,255 5,846 28,860 19,809
Depreciation and
Amortization 270 300 1,128 1,141
-------- -------- -------- --------
Operating Expenses -
Portfolio 8,525 6,146 29,988 20,950
-------- -------- -------- --------
Corporate Expense:
General and
Administrative 4,158 2,878 20,154 16,991
Depreciation and
Amortization 799 597 3,260 2,219
--- --- ----- -----
Operating Expenses -
Corporate 4,957 3,475 23,414 19,210
-------- -------- -------- --------
Total Operating Expense $ 33,782 $ 26,892 $143,208 $111,650
======== ======== ======== ========
Total Operating Exp. -
% of Revenues 25.0% 25.5% 23.7% 24.0%
===== ===== ===== =====
Other Information:
------------------
Dealerships Open - End of
period 77 72 77 72
======== ======== ======== ========
Used Cars Sold 11,874 9,731 56,870 46,120
======== ======== ======== ========
Retail Operating Expenses -
Per Car Sold:
---------------------------
Selling and Marketing $ 506 $ 532 $ 506 $ 502
General and Administrative 1,097 1,139 991 970
Depreciation and
Amortization 107 104 82 78
-------- -------- -------- --------
Total Retail Operations -
Per Car Sold $ 1,710 $ 1,775 $ 1,579 $ 1,550
======== ======== ======== ========
Corporate Expenses:
-------------------
Per Car Sold $ 417 $ 357 $ 412 $ 417
======== ======== ======== ========
As % of Total Revenues 3.7% 3.3% 3.9% 4.1%
=== === === ===
Loan Servicing Expenses -
% of Portfolio Managed:
-------------------------
Managed Principal Balances:
Dealership Originations $519,005 $424,480 $519,005 $424,480
Serviced for Others 1,220 12,983 1,220 12,983
-------- -------- -------- --------
$520,225 $437,463 $520,225 $437,463
======== ======== ======== ========
Loan Servicing Expenses
(Annualized) as % of
Managed Principal Balances 6.6% 5.6% 5.8% 4.8%
=== === === ===
UGLY DUCKLING CORPORATION
Consolidated Balance Sheets
(Unaudited)
(Dollars In thousands)
December 31,
--------------------------
2000 1999
----------- -----------
ASSETS
Cash and Cash Equivalents $ 8,805 $ 3,683
Finance Receivables, Net 500,469 365,586
Note Receivable from Related Party 12,000 12,000
Inventory 63,742 62,865
Property and Equipment, Net 38,679 31,752
Intangible Assets, Net 12,527 14,618
Other Assets 11,724 12,327
Net Assets of Discontinued Operations 4,175 33,880
--------- ---------
$ 652,121 $ 536,711
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts Payable $ 2,239 $ 3,185
Accrued Expenses and Other Liabilities 36,830 26,905
Notes Payable - Portfolio 406,551 275,774
Other Notes Payable 16,579 36,556
Subordinated Notes Payable 34,522 28,611
--------- ---------
Total Liabilities 496,721 371,031
--------- ---------
Stockholders' Equity:
Preferred Stock -- --
Common Stock 19 19
Additional Paid-in Capital 173,723 173,273
Retained Earnings 21,772 12,709
Treasury Stock, at cost (40,114) (20,321)
--------- ---------
Total Stockholders' Equity 155,400 165,680
--------- ---------
$ 652,121 $ 536,711
========= =========
UGLY DUCKLING CORPORATION
Finance Receivables and Allowance for Credit Losses Information
(Unaudited)
(Dollars In thousands)
December 31,
2000 1999
----------- ------------
Contractually Scheduled Payments $ 696,220 $ 492,937
Unearned Finance Charges (181,274) (134,119)
--------- ---------
Principal Balances, net 514,946 358,818
Accrued Interest 5,655 3,741
Loan Origination Costs 7,293 5,079
--------- ---------
Principal Balances, net 527,894 367,638
Investments Held in Trust 71,139 56,716
Residuals in Finance Receivables Sold 1,136 17,382
--------- ---------
Finance Receivables 600,169 441,736
Allowance for Credit Losses (99,700) (76,150)
--------- ---------
Finance Receivables, net $ 500,469 $ 365,586
========= =========
Allowance as % of Ending Principal
Balances, Net 19.4% 21.2%
========= =========
Twelve Months Ended
December 31,
-------------------------
2000 1999
----------- ----------
Allowance Activity:
Balance, Beginning of Period $ 76,150 $ 24,777
Provision for Credit Losses 141,971 102,955
Other Allowance Activity (2,666) 6,424
Net Charge Offs (115,755) (58,006)
--------- ---------
Balance, End of Period $ 99,700 $ 76,150
========= =========
Allowance as % Ending Principal
Balances 19.4% 21.2%
==== ====
Charge off Activity:
Principal Balances $(149,734) $ (71,277)
Recoveries, Net 33,979 13,271
--------- ---------
Net Charge Offs $(115,755) $ (58,006)
========= =========
Managed Loans Outstanding
--------------------------------------------
Principal Balances # of Loans
----------------------- -------------------
December 31: 2000 1999 2000 1999
----------------------- -------------------
Principal - Managed $519,005 $ 24,480 84,864 70,450
Less: Principal -
Securitized and Sold 4,059 65,662 2,266 17,369
-------- -------- ------ ------
Principal - Retained
on Balance Sheet $514,946 $358,818 82,598 53,081
======== ======== ====== ======
December 31,
-----------------------
Days Delinquent: 2000 1999
---------- ----------
Current 66.1% 63.2%
1-30 Days 26.1% 27.8%
31-60 Days 4.7% 5.9%
61-90 Days 3.1% 3.1%
---- ----
Total Portfolio 100.0% 100.0%
===== =====